In strategy shift, Vitesse signs channel deal with Nu Horizons

Communications IC manufacturer Vitesse Semiconductor Corp. last week signed an exclusive two-year agreement in North America with Nu Horizons Electronics Corp. The deal marks the first authorized distribution relationship for Vitesse.

The agreement fills a perceived hole in Nu Horizons' optical communications offering and gives Vitesse approximately six dedicated field-applications engineers to help create demand for its products. The decision to turn to the channel also marks a shift in Vitesse's OEM strategy, where design-ins historically have been facilitated by an EMS partner.

"Nu Horizons is more of a demand creation distributor. It will allow us to find new customers and expand opportunities within our existing customer base," said Richard Riker, vice president of sales and marketing at Vitesse, Camarillo, Calif.

Nu Horizons said the agreement will give it an edge in the optical communications market by providing the ability to influence OEM designs earlier in the product development cycle-a tactic it uses with all of the suppliers on its line card of 26.

The ability to create demand for its suppliers will help the distributor generate an additional $100 million a year, according to Dave Bowers, vice president of marketing at Nu Horizons, Melville, N.Y.

"Being able to engage with one of the four lead [communications IC] players clearly positions us in the market as a viable force," Bowers said. "No doubt, the communications market is off dramatically, but it will come back. Design activity has remained very strong and we're starting to see some signs of an uptick in production."

Analysts cautioned, however, that the timing is off for large immediate returns and said the increased revenue stream that Nu Horizons hopes to gain from the relationship might be more difficult than first thought. Vitesse is expected to generate only about $38 million in revenue this quarter, meaning that Nu Horizons will need significant contributions from all of its suppliers to realize its additional revenue goals, according to Peter Andrew, an analyst at A.G. Edwards & Sons Inc., St. Louis.

"Vitesse's fiscal year ended in September, and it should generate revenue of roughly $384 million, declining to $190 million for 2002," Andrew said. "Signing with a distributor is positive for Vitesse, but if you review current market conditions, the supply chain can also be somewhat of a hiding place for components, which has become a practice for many suppliers this year."

Nevertheless, Vitesse's Riker has high expectations for the relationship. "We're investing in Nu Horizons as a channel to provide us with demand creation and awareness," he said. "Our product line is very sophisticated, and we really need a niche distributor focused on demand creation. In the past, contract manufacturing played a growing role in our strategy to design-in components for OEMs."

Whether Vitesse will take the North American relationship global remains to be seen; the companies said they will review the agreement in six to nine months.OR